Leverage calculator

What leverage does, in one sentence

Borrowing lets you acquire an asset larger than your own stake. If that asset returns more than the loan costs, the difference goes entirely to your stake — which then shows a return higher than the deal itself. That is the whole of leverage.

An example fits in two lines. A deal of 100 returning 5 a year yields 5%. Funded with 20 of your own money and 80 borrowed at 3%, it still returns 5, of which 2.4 goes to interest: 2.6 is left on a stake of 20, or 13%. The return on the deal has not moved; the return on your stake has been multiplied.

The point where it turns

Everything rests on one gap: between the return on the asset and the rate on the loan. While it is positive, leverage amplifies the gain. The moment it reverses — a falling return, a rising rate, a vacant property, repairs — leverage amplifies the loss with exactly the same force.

The smaller your stake, the stronger the amplification in both directions. Financing 90% turns a modest change in the return into a very large change in the result, which is why two deals showing the same gross yield do not carry remotely the same risk.

The calculator makes that gap visible by varying the rate and the amount borrowed: it is the only way to see where a given deal turns, rather than discovering it afterwards.

What the calculation leaves out

Annual profits are entered net of costs but before loan repayments, and assumed constant. No tax is applied: no income tax on rent, no social levies, no special regime. Resale, its costs and any capital gain are not in the calculation either.

In other words, the result measures the current return on your stake, not the full performance of a property deal. It is a useful measure for comparing financing arrangements on the same deal — and not enough to decide whether to buy.